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Aligning Investments with the Paris Agreement Temperature Goal

Challenges and Opportunities for Multilateral Development Banks

This working paper by Germanwatch and NewClimate Institute studies how Multilateral Development Banks (MDBs) can operationalize their commitment to align financial flows with the Paris Agreement, focusing on alignment with the Paris temperature goal.

Alignment with the Paris Agreement has several dimensions, including alignment with the long-term goals on climate change mitigation and adaptation as well as support for the enhancement and implementation of nationally determined contributions and other country-owned strategies and plans. This paper analyzes one of these dimensions, namely alignment with the long-term mitigation goal or Paris temperature goal of holding global warming well below 2°C and pursuing efforts to limit it to 1.5°C.

The paper discusses how scientific Paris-aligned scenarios and research can be used for decision-making. It reviews the relevant existing climate tools used by seven major MDBs and proposes additional tools to assess Paris-alignment at project level for two particularly emissions-intensive sectors: energy supply and transport infrastructure. The working paper also provides recommendations on how to align MDB operations with the Paris Agreement beyond direct investment financing, for example in financial intermediary lending and policy-based lending. It highlights the transparency needs to improve reporting on alignment of the overall portfolio and pipeline and disclosure of climate-related financial as well as finance-related climate risks.

The research aims at providing a better understanding of the current state of play and options for further action on aligning MDB investments with the Paris Agreement. Lessons can be derived not only for the MDBs, but also for other development finance institutions and private financial institutions seeking to align their investments with the Paris temperature goal.

This working paper is published as part of a larger research project examining the role of MDBs in supporting the implementation of the Paris Agreement. This research contained in this paper may be further refined, based on feedback received, and key findings will be incorporated into the final report covering all aspects of Paris alignment to be published by the end of 2018.